George Cooper is a Senior Mortgage Advisor with Primary Home Finance in East Greenwich, Rhode Island.  I asked George to lend a little insight to what effect  a Declining Market tag has on mortgages.  Currently all Rhode Island counties are considered Declining Markets, despite growth within many areas.   

In a small state like Rhode Island, a family attitude means everything.  This is what Primary Home Finance is all about. Some people say, “Don’t ever do business with friends or family.” We say…that’s what we do every day!  George Cooper    Click the play button to listen!

 

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Spring is here, which means this is the time of year where we see the most listings come one the market at one time.  Fall is another spurt, but there’s something about the thaw that brings people the moving idea all at once.  In a market where inventory is low, this is a blessed thing.  In a market where inventory is high and buyers are few, it may not have a tremendously positive effect.  It doesn’t have to be a bad thing.  But if you are selling a home in peak season, you just have to make certain it is priced competitively, staged well, and marketed properly.  Remember, people are always buying and selling houses regardless of the economic forces at play. 

Not surprisingly we saw a boost in inventory during March.  On March 1, 2008 there were 5922 single family homes for sale, and on April 1, 2008 there were 6222.  Normal stuff.  Condo actives grew from 1776 to 1816.  Average listing price went up a bit for each category.  March 1, the average list price was $428,716 and by April it was $432,920.  Condo list price increases were even less obvious.  $336,155 in March to $336,506 in April. 

A nice sign was paralleled increase in sold figures.  358 Single family homes sold in February, and 467 sold in March.  Condos were up as well; 66 sold in February to 81 in March.  Single family sold prices went up as well.  In February, 2008, the average home sold price was $297,111 and March’s figure was $325,832.  While this doesn’t constitute a turnaround in our market, it’s nice to see steps in a positive direction.  While single family homes saw an increase in sold prices, condos dipped a bit.  February saw an average of $266,759 and March settled in at $224,707.  Again, these statistics need to be looked at over a much longer period of time to make accurate judgements.

The Bush administration’s top housing official is under a criminal investigation and announced Monday he is quitting.  Housing and Urban Development Secretary Alphonso Jackson said his resignation will take effect on April 18.  For a couple of years now, Jackson has been fending off allegations of cronyism and favoritism involving HUD contractors. The FBI has been examining the ties between Jackson and a friend who was paid $392,000 by Jackson’s department as a construction manager in New Orleans after Hurricane Katrina.  He did not mention these allegations in his speech, instead citing there is a time to “attend more diligently to personal and family matters. Now is such a time for me.”

The mortgage industry has gone through some a major overhaul recently, and there is more to come.  The latest shoe to drop is the 100% financing / zero down mortgages.  Not all of them are extinct, but don’t look to Fannie Mae or Freddie Mac to guarantee one.  Now these mortgages are deemed a risky lending practice as house prices fall in many areas.  Now they are deemed risky?  That’s like gunshot wounds being deed risky now.  Old milk?  Risky now.  Driving with your eyes closed?  Research has shown that to be a risky behavior now, and should be avoided.  But back when home prices were escalating out of sight, and many buyers were digging through their car seats for down payment money it wasn’t risky then?  Creating “qualified” mortgage clients out of thin air and a wink wink and putting them in programs so far over their heads they could not see past the pre-payment penalty to come up for air was not risky?  Making extra dollars from these people with elevated interest rates - because golden nuggets like 100% financing don’t come without a price - only to make more money on their necessary and eventual refi’s did not put the client at risk?  Oh and the parting gift - you lose your house.  We’ll explain negative equity and its dangers some other time, dear client.  I must be really out of touch because I just can’t get my head around this one.

Now of course, I am obligated to say that not all 100% financing mortgages went sour.  For some people it made sense to keep the cash in the bank as money was historically low to borrow.  If a house was purchased at a not so over the moon price and it still has equity, then it worked out for the best.  My issue is with the segment of mortgage lenders who preyed upon unsuspecting dreamers who wanted a piece of the American Pie. 

Since January, banks have reported $146 billion in losses on U.S. mortgage securities.  Many of the mainly sub-prime lenders are out of business now and I could not be happier.  Something about sowing and reaping should be inserted here.  The mortgage lenders I have been fortunate enough to call my peers have not counseled clients into this mess.  For some it meant losing a deal, but I think they’d trade that for a sound night’s sleep anytime.   

So now the government is determining that the very poison which greased the mortgage wheels for years is, in fact, toxic.  Thanks.  Now if you’ll excuse me I have some knives to juggle.

Would you believe that Office of the General Tresurer is holding more than $124 million in unclaimed property and assets?  These are properties, bank accounts, etc. which have simply been forgotten about.  This records can go back decades for you or a family member.   RI State law requires businesses to turn over inactive financial accounts to the Office of the General Treasurer, and in turn the Treauerer notifies the public of these holdings.  The list of the names of people who have unclaimed property were released today. Curious?  Click here to see if you are one of the thousands of Rhode Islanders who are on this list.

Update! Despite earlier reports, JP Morgan has raised the bid for Bear Stearns from $2.00 a share to $10.00 after major negative feedback from stockholders.  This puts JP Morgan’s ante up to roughly $1 billion.  The Fed will lend JP Morgan another $29 billion to seal the deal.  What’s in it for the Fed you may ask?  Well, if the securities in question - high risk mortgages mainly - sell for more than the $30 billion they are valued at now then the Fed takes the profit.

The deal is even sweeter for JP Morgan.  If these securities fail to sell for more than $30 billion they are only on the hook for the first $1 billion and the Fed is responsible the rest of the loss.

The Federal Reserve took dramatic measures this past week to try to inject a little calm amidst the concern over not only the housing market, but Wall Street and the credit crunch as well. To begin with, the Fed assisted in the sale of Bear Stearns, one of Wall Street’s biggest and most storied banks. The Fed extended a $30 billion (yes that’s a B) credit line to JP Morgan, their rival. Bear Stearns was about to collapse due to major losses in the mortgage market. To put this into perspective of how serious this situation was, let’s look at Bear Stearns for a minute. 85 years on Wall Street. Yep. JP Morgan buys them for about $2.00 per share. Yep. Bear Stearns stock was trading near $30 a share on Friday and their building is worth about $1 billion alone. Huh? Exactly! Bear Stearns was running so low on cash, facing major press about their mortgage losses, and clients were pulling their cash out like it was bobble head day at the ATM. They had no choice. To stay in business they needed a cash flow injection and fast.

What about their shareholders? Their acquired wealth may be eliminated. And thus sets the wheels in motion for a nasty domino effect. The Fed’s moves raise questions about just how deep the financial industry’s woes go — and what other banks might be at risk.

In addition, the Fed lowered the discount-lending rate — that’s the rate which it charges banks for very short-term loans by a quarter-point, to 3.25, on Sunday. It followed that on Tuesday with a cut of three-quarters of a percentage point to another key interest rate, the federal funds rate. See the cause and effect on this rate drop from an earlier post.

All of our financial markets right now are very unsteady. What people are concerned with, and rightfully so, is that if a historic giant can tumble like Bear Stearns, are other institutions at risk? The worst thing that could happen would be a run on the other banks, further worsening their liquidity and essentially stopping all of the financial markets dead in their tracks.

It is hard for me as a layman to put this in terms that exactly point out how critical this is for our economy. Simply stated, with out these investment banks like Bear Stearns, JP Morgan, Lehman, etc. our cash flow dries up. if you or I were to miss a paycheck for a few months you can see the effect that would have on your household. Multiply that times by billions and that is the effect the country will feel.

So, with these banks feeling this significant crunch, they are hesitant to lend each other money. No one can really say how much bad debt these banks actually have. One would guess that those who have the most exposure to sub prime mortgages and other risky products would be on the list. Wall Steet whispers mention UBS and Lehman Brothers beacause of their exposure to these mortgage related securities.

$200,160.00 was the limit for a single family FHA maximum loan. That limit has been raised to $316,350. Multi family loan limits have been raised as well, as the spreadsheet indicates. Is this a magic fox for all of Rhode Island’s real estate problems? Of course not, but it is a start. It is one piece of the very confusing puzzle which makes up our real estate market. Quite frankly, anything at this point which can help get inventory moved is a positive thing. So by raising these limits, people who utilize FHA loans now have more selection to choose from. Below are the complete adjustments for these loans.

It is important to understand what exactly an FHA mortgage is. Simply put, it is a mortgage for a house, mobile home or a property improvement that is written by a private lender and insured by the Federal Housing Administration. The FHA provides this loan guarantee program in lieu of mortgage insurance so qualified buyers can get into these loans with minimal down payment, and the bank doesn’t take any risk lending the money. FHA guidelines are not as strict as Fannie Mae. The most utilized program involves a minimum of just 3% down payment. This payment can also be in the form of a gift from a relative or even a non-profit organization.